 by [TC]² |
Three Keys to Success in Building an eCommerce Strategy in Softgoods A white paper from i2 Technologies Table of Contents
When building an eCommerce strategy in the softgoods industry, a few players will reap the benefits and rewrite the business model to ensure their continued success while many players will lose, and lose large. The companies that do not embrace the internet as a way to maximize their share of a consumer’s spending dollar run the risk of loosing out to companies like Amazon and Dell. Amazon and Dell reinvented the consumer experience, and as such, have a tremendous lead over their competition. In the softgoods industry, the day is fast approaching when consumers will be able to find the products they want at the lowest price through electronic marketplaces, internet search engines, shopping agents, and electronic auction sites, just as they do for computers and books today. This is a grim prospect for both manufacturers and retailers in the industry, especially those that do not quickly embrace the new world order and the power of the internet. For those companies that do embrace the new technology, the ability to reinvent the consumer experience within the softgoods industry is within reach. In looking at the leaders in "business to consumer" eCommerce, we can easily identify 3 common fundamental principles:
The Three Fundamental Principles Providing a Personalized Shopping Experience Amazon’s key strategy over the coming years is to be the first name in eCommerce and to build strong loyalty among its 10 Million and growing customer base. How does Amazon plan on keeping brand loyalty in an environment where virtually anyone can develop a net presence overnight and where virtually all products are being commoditized? According to Jeff Bezos, Amazon’s CEO, it is the personalized experience that will differentiate Amazon from other eTailers and established brick and mortar companies. Amazon wants to continue to surprise and excite people through understanding the individual buying patterns of its customers. Today, Amazon does this by offering "structured surprises" that give customers various rewards for shopping with Amazon, in an effort to both instill brand loyalty, as well as delight the customer. Some examples of structured surprises that Amazon offers include not charging for gift wrapping as a "thank you" for a purchase, offering $5.00 coupons for customers that have not visited in a while, and upgraded shipping, among other enticements. As has been found in a study by Beth Cox of Internet News, nearly 50% of consumers that shop online would be loyal to a particular web site, if they were rewarded for continued patronage. With thousands of options to choose from on the Internet, online retailers see these incentives as something to help distinguish their sites. Amazon was one of the first and does this very well. While the structured surprises that Amazon currently offer encourage repeat business, they are not tailored to a specific individual’s preferences. However, with new personalization technologies, Amazon and others are planning to personalize these enticements, and one day be able to deliver custom tailored versions of its store, built on-the-fly for each individual customer. Combine the personalization technology with the 10 million customers that Amazon has already amassed, and you have a buying environment unlike anything that current real-world retailers can offer. Those companies that can pull off personalization such as this will be able to offer the economies of scale of the mass merchants with the personalization of boutiques – a tough combination to beat. This, along with electronic community building programs such as online product reviews, adds to the personalized experience. Back-end Customer Service and Fulfillment Many shoppers on the web have found the web is a great place to visit, but not a great place to shop. A recent study found that approximately 67% of people that shop at a site and start filling their online shopping cart leave that site before finalizing the sale. The primary culprit may be the horrendous customer service and fulfillment that many sites are providing. There are many real world examples of poor customer service and fulfillment in the "internet world." Some examples include the following:
As more and more sites begin selling products on-line and competition becomes stronger, customer retention is critical for all sites. It’s a safe bet that consumers who suffer poor customer service and don’t get their orders as promised, will not purchase from that particular site again, if at all possible. Though marketing is often mentioned as Amazon’s and Dell’s primary reason for success, the reality is that the back-end fulfillment process is just as important in that it has allowed these pioneers to benefit from high customer retention rates and repeat customer purchases. Amazon is one of the best today at keeping in touch with customers and consistently shipping products as promised. Amazon realizes that though their service makes them a leader today, this is not enough to sustain their lead in the future. Over time, Amazon and many others will have the capability to quote actual product availability in real-time while the consumer is online. These leaders will also be improving their back-end operations to enable them to fulfill orders at a lower cost. Compare this commitment to service to these other high-profile eCommerce companies who are not known for customer service:
As more and more competition enters the fray, sites like these risk losing big because they have not mastered customer service or on-time fulfillment needed to retain current customers or attract new customers. According to many research firms, web shoppers are growing increasingly dissatisfied with sites that suffer from outages, out-of-stock merchandise, charge outrageous shipping and handling charges, or don’t ship on time. Much of these problems can be attributed to the fact that web merchants have concentrated on attracting new business rather than keeping current customers happy with flawless back-end execution and strong customer service. To continue to keep repeat buyers, sites will have to adopt better fulfillment practices. Once a consumer has a bad buying experience with a specific site, the chance that the consumer will buy anything else from that site is greatly diminished. To make matters worse, that consumer is also very likely to communicate the disappointing experience to others! According to a Forrester study, half of those consumers that have had bad experiences have abandoned the offending merchant. Execution Against the Future Strategy According to Jeff Bezos, Amazon’s plan over the next couple of years is to continue to focus on selling broad and deep selections of merchandise in certain categories, including books, music, gifts, and videos directly to consumers. Amazon will also facilitate eCommerce between consumers and other retailers by acting as the middleman through its "Shop the Web" service. Amazon is starting to evolve from being a pure eTailer, concentrating on books, records, etc. to a future-shopping portal. Amazon’s strategy is to be at the center of as many shopping transactions as possible. The enabling technology that Amazon will use to do this is the "Shop the Web" product search service. Due to their strong name recognition in Internet shopping, many people looking for a product will shop Amazon first. If that person is looking for something that Amazon carries, Amazon will ship the product as the primary seller. If that person, however, is looking for products that are not Amazon products, the "Shop the Web" search service will allow for Amazon to direct a shopper to another site that has the product. If the shopper purchases the product, Amazon will collect a fee from the selling site. This is a very high margin revenue stream business that will allow Amazon to concentrate on its focused effort to add more stores within stores. What makes this all possible is Amazon’s brand equity. Dell’s strategy is very similar to Amazon. Michael Dell estimates that more than half of the product sold through Dell Online will be non-Dell product! Both Dell and Amazon realize that in the online universe, the traditional merchandizing and inventory problems associated with providing broad and deep product selection does not exist and have built strategies to aggressively extend their product offerings. As they both carry a strong brand image, consumers are likely to shop Dell and Amazon first. Lastly, the leaders in eCommerce move at "Internet Speed". We’ve all heard the term but what does it mean? Loosely stated, moving at Internet speed means that these companies are able to quickly take advantage of technology and the environment to raise the bar and change the game. Dell and Amazon were among the first to see the Internet as a viable sales channel to offer a broad range of products and to realize the importance of timely fulfillment. They continue to use Internet speed to their advantage.
How to Capture the Dominant Position in Softgoods? We have visited the primary strategies that eCommerce Leaders in other industries are using to capture the dominant positions. The question then, is how can softgoods manufacturers and retailers build similar online presence and also take dominant positions within this industry? Obviously, the answer is by following the same principles as these leaders, i.e., providing the personalized experience on the front-end and couple it with the best back-end fulfillment and customer service while driving to a strong long term strategy for eCommerce and moving at "Internet speed". Providing the Personalized Consumer Experience Providing the personalized consumer experience is paramount to attracting and keeping customers. This personalization takes many forms, but in general allows the consumer to conduct business from his or her perspective, rather than from the perspective of the merchant. Personalization can take the form of static personalization, dynamic personalization, or intelligent personalization. Static personalization allows for content to be presented based on general demographic information. Dynamic personalization allows for content to be presented based on the buyer’s interests and past buying history. Both of these are beneficial and help to form a consumer centric experience, but it is only when intelligent personalization is used that the benefit to both the consumer and the merchant are maximized. Intelligent personalization takes into account the above aspects of personalization but matches this up to what the merchant can best offer, given product availability, time, budget, or other constraints. For instance, if a consumer is interested in purchasing a black, cotton, pique golf shirt in XXL for tomorrow’s golf game, but a site is unable to fulfill that demand due to the product being out of stock, rather than suffer perishable demand, an intelligent personalized experience will allow for the site to recommend alternate products. Conversely, intelligent personalization will also allow the site to up-sell other complementary products given the products that a consumer is interested in, knowledge of a consumer’s buying habits and visibility to the complementary products that a site has access to. Being able to provide this experience has huge benefits for the consumer. It allows the consumer to quickly and easily find and purchase the products that they are interested in. These products may be something the consumer is explicitly searching for or they may be something that the consumer might be implicitly interested in based on his past purchases, his profile, etc. By utilizing intelligent personalization, a site can mimic the personalization that a consumer would get from the "old time general store" but with the product selection of a large mass merchant. For the merchant, the benefits are potentially just as large. Personalization allows the merchant to understand a consumer’s exact shopping preferences such as what was bought, which products were bought together, how much a specific consumer spends during any given session, what sizes and colors are being purchased, etc. All this information gives the merchant the ability to personalize the merchandizing process and up-selling and cross-selling products based on that consumer’s preferences, or "push" obsolete material to certain customers based on their likelihood of buying. Ultimately, the merchant could even price product dynamically based on an individual’s profile and desire for the product. The other large benefit to the merchant is that by providing the personalized experience, the consumer is highly likely to become a site loyalist. A related benefit for those merchants that also have brick and mortar channels is that being successful in the Internet world can also have benefits that span both channels. For instance, this personalized preference data can be used to more effectively merchandize the brick and mortar stores with potentially less inventory and the internet channel can be used as a vehicle for bringing people into the store through affinity marketing (frequent purchaser) programs. Intelligent Fulfillment of Product Successful, intelligent fulfillment of product also is something that benefits both the merchant and the consumer. For the consumer, getting the product when it was promised and shipped as requested is the final step in a successful shopping experience. However, if the consumer does not get the order on time or as requested, the experience will be ruined. For the merchant, intelligent fulfillment not only ensures a happy customer but is also often the difference between a profitable sale and one that loses money. Today, there are many online merchants that are fulfilling customer orders, however, a vast majority of them are doing this at great cost. One needs only to look at the fact that it costs many online merchants at least $20-$30 to fulfill an order. Being that the current average online purchase is roughly $100, this does not leave much room for profit. In fact, many on-line retailers don’t know the actual cost for them to fulfill an order and some even lose money on every order they ship! Holistically, the only way to have intelligent fulfillment is through having visibility of the entire fulfillment operation along with the ability to provide real time delivery dates, intelligent logistics services such as "merge-in-transit" and ultimately strong supply chain integration. By being able to quote accurate delivery dates to the consumer during the online shopping process, you are building strong customer satisfaction. If a particular date does not satisfy a consumer, you have the ability to sell him an alternate product, thus creating an opportunity to up-sell, rather than losing the sale or upsetting the customer. Ultimately, with the ability to provide these real time delivery dates, a merchant could even price product based on how quickly a consumer needs the product. The ability to intelligently source product from the right warehouse, use the optimum shipping method, provide merge-in-transit, and see shipment status is paramount to successful logistics. As sites continue to ship more and more orders, offer a deeper selection of product, and ultimately ship orders with multiple line items to consumers, the ability to ship from the low cost warehouse, use the right transportation, and merge the multiple line items into a single shipment can mean the difference between making a 20% margin or losing money on that order. Lastly, only by having strong integration with the supply chain, can a web retailer be able to match supply and demand, determine the optimum master schedule and inventory plan to satisfy the demand, and react quicker to changes in either supply or demand. This will allow the web retailer to be able to fulfill orders without creating vast amounts of inventory. Executing Against a Strong Long Term Strategy and Executing Many companies believe that the need to develop an internet strategy is still 1-2 years away, and those companies that are using the net today are often not using it as a strategic tool. These companies are fearful to tamper with their current retail channels as the manufactures are afraid to upset their retailers and the retailers are afraid to cannibalize sales from their brick and mortar storefronts. The fact is, if a company does not eat his own lunch, another company will. The successful eCommerce companies have realized that in this Internet age, the rules have changed, and the opportunity to redefine the business model is now. These companies also realize that lines between brands, manufacturers and retailers are blurring, and that extending product selection and product line offerings is far easier in the Internet world than in the pure brick and mortar world. Even more fundamentally, these companies realize that they are in competition for larger percentages of the consumer dollar. Amazon is working to perfect the fulfillment of groceries to consumers’ door fronts, realizing that this will give them a clear advantage in selling consumers other product in the process. Gateway is giving substantial rebates to buyers who sign up for long term internet service, realizing that by doing this, it controls the what sites the consumers see when they log in to the internet. Buy.com sells products at a loss, hoping to make a profit from advertisement revenue. We could go on and on, but the point is that these leaders, and many others are looking at ways to change the rules, and they are acting at internet speed to deploy the solutions. Many companies, both in the softgoods industry, and in other industries are looking at the opportunities in this industry and building strategies accordingly.
The clock is ticking…It is only a matter of time before companies – be they brands, manufacturers or retailers - takes advantage of the internet as a tool to redefine the customer model in the softgoods industry. The technology is available today and the industry is ripe for the picking. Those companies that do take advantage and that follow the principle of creating a personalized consumer experience, match it with an intelligent back fulfillment and execute against a long term strategy could end up being the Amazons and Dells of this industry. |